Basic Legal Concepts For Small Businesses And Start-ups

Start-ups and small businesses focus on products and sales more than law and order, but understand legal basics is a priority too. Here's what you need to know.

Share this article

The start-up community is going from strength to strength with innovative and creative products and services. Whether you are building your venture with co-founders or alone, it’s vital that you become acquainted, quickly, with the legal areas and red tape that have the potential to impact you and your business.

My firm, Taylor Rose TTKW, believes these areas of the law are vital for Start Up businesses and SMEs to understand:

Employment Law

Employment Law is a vast area and covers a plethora of topics; making sure that you are compliant with it goes far beyond making sure that you are staying within the realms of the law but works in your favour to help create a content and productive team.

Even from the off you should be aware of aspects such as; job offers made verbally being legally binding can be upheld in the same manner that a written one can. In real terms, this means that you need to be extremely clear even within the interview process where the candidate stands at all times.

A job offer contract should be conditional, and can be subject to the completion of a probation period. If you have reserved the right to change the terms of employment, you are able to do so; however be aware that these may be challenged if they do not work to benefit the employees.

Generation Y are extremely savvy and will take their time to read the conditions of their employment – far more so than the generation before them. If changes to the contract does not benefit them, you could very well find yourself being landed with a law suit.

Generation Y or 'Millennials' are a professional and exacting bunch

In this day and age it is absolutely crucial to investigate the proof of a potential employee’s right to work in the UK.

Hiring the wrong person can be a costly mistake, one way to combat this is to know how to obtain the right information from a reference.

Finding out the candidates strengths and weaknesses, work performance and personality traits will enable you to seriously consider the induvial plus look ahead and plan for how they can be effectively supported and managed. Where possible, look for references from a number of sources such as former senior figures and colleagues to get a comprehensive view.

The traditional working hours and working environments are changing with many young start-ups following in the footsteps of those in the tech hotspots across the world. Offering telecommuting and 24 hour offices to allow employees to work to a schedule that suits their most productive times of day.

Whilst this more relaxed approach may suit your business, it is still within your best interest to lay out the number of hours that the employee is required to work each week – be aware that the maximum average working week is 48 hours, although an employee can voluntarily agree to dismiss this rule (if so, obtain this in writing).

After 26 weeks, all employees have the legal right to request flexible working, and you as the employer are legally obliged to consider and discuss each request with the member of staff.

Co-Founder deals

The co-founder deal is the very basis of your business, and one that will help to shape the future and safeguard its success.

It is crucial to the success of the business that a co-founder agreement is clear, concise and transparent– very similar to a pre-nuptial agreement. The co-founder agreement should address areas roles and responsibilities, ownership, investment and intellectual property.

Co-founders need to more than just a handshake top secure proper terms

In some aspects, the co-founder agreement should include details similar to those included within an employee contract. In the early stages, collaboration amongst all team members is so important but that should not forgo the founder that is ultimately responsible for particular elements within a business.

If a functional management system including responsibilities and reporting isn’t clear from the beginning then it’s easy for confusion, and a result, frustration to appear. It also ensures a certain level of trust and respect.

Percentage of shares, vesting along with salaries and future increases feature highly in co-founder agreements for obvious reasons, having definitive benchmarks for when it is viable to increase salaries.

In true ‘pre nup’ style, it is never ideal to consider the delicate matter that a founder may part ways at the very beginning of a venture but it is vital that the ways in which equity and intellectual property will be split. But should one founder up and leave one day you want the risk to yourself and the business to be minimal.

Intellectual Property Protection

Intellectual property (IP) is a high value asset to every business. It refers to works that falls into 4 areas; patents, trademarks, copyrights or design rights, more information on this can be found here. Within this that means even your logo, brand name or a district strategy that you have created fall with IP.

In this age of innovation, unique breakthroughs, creations and discoveries are coming to light every day and it’s vital that you protect what you create or discover.

If you have created something that is truly unique, this could be a distinct opportunity to increase revenue. Being able to market your USP will drive business alone – but consider the possibility of franchising or merchandise.

There are numerous cases where businesses have unintentionally infringed on someone else’s intellectual property and has gone on to be very costly.

Seeking legal protection for IP is a way to future proof your business for a number of ways; ensuring that your intellectual property is protected outside of the UK and as mentioned previously, assigning the rights and ownership of the IP (this is particularly important to the future of the business should one founder leave).

Of course, there is an avalanche of information available online for the laws that apply to young businesses and there are also templates for the various contracts that you may want to implement.

We urge business owners and entrepreneurs to seek the advice of professional solicitors to ensure that they are aware of the laws and legal requirements that applies to the nature of their business and make sure that they protect their business in every way possible.